Not sure if I understand your requirements fully, but this works for me: 
for my $p ($xhtml->findnodes('//blockquote/p')) {

    my $text = $p->as_text();
    $text =~ s/^\s+//;
    $text =~ s/\s+$//;

    if ( $text =~/\n\s*\n\s*/ ) {
        my @paragraphs = split(/\s*\n\s*/, $text);
        my @new_elems;
        for my $para (@paragraphs) {
            my $new = HTML::Element->new('p');
            $new->push_content($para);
            push(@new_elems, $new);
        }
        $p->replace_with(@new_elems);
    }
}

[download]

In reply to Re: Replacing an HTML element with multiple elements using HTML::TreeBuilder by tangent
in thread Replacing an HTML element with multiple elements using HTML::TreeBuilder by mldvx4

Title:
Use:  <p> text here (a paragraph) </p>
and:  <code> code here </code>
to format your post, it's "PerlMonks-approved HTML":


  • Posts are HTML formatted. Put <p> </p> tags around your paragraphs. Put <code> </code> tags around your code and data!
  • Titles consisting of a single word are discouraged, and in most cases are disallowed outright.
  • Read Where should I post X? if you're not absolutely sure you're posting in the right place.
  • Please read these before you post! —
  • Posts may use any of the Perl Monks Approved HTML tags:
    a, abbr, b, big, blockquote, br, caption, center, col, colgroup, dd, del, details, div, dl, dt, em, font, h1, h2, h3, h4, h5, h6, hr, i, ins, li, ol, p, pre, readmore, small, span, spoiler, strike, strong, sub, summary, sup, table, tbody, td, tfoot, th, thead, tr, tt, u, ul, wbr
  • You may need to use entities for some characters, as follows. (Exception: Within code tags, you can put the characters literally.)
            For:     Use:
    & &amp;
    < &lt;
    > &gt;
    [ &#91;
    ] &#93;
  • Link using PerlMonks shortcuts! What shortcuts can I use for linking?
  • See Writeup Formatting Tips and other pages linked from there for more info.